Administration Initiative to Eliminate Improper Payments Starts to Come into Focus

On March 22, the Office of Management and Budget (OMB) released new guidance for implementing President Obama's recent Executive Order 13520, which instructs the federal government to reduce improper payments to individuals and businesses. The initiative attempts to use transparency, public participation, and executive branch accountability to reduce "payment errors" and eliminate "waste, fraud, and abuse" in major federal programs. The guidance, however, is incomplete, and OMB will have to work to fill out the program's details.

An improper payment can consist of any funds wrongly disbursed by the federal government to an individual or business as a program beneficiary, grantee, or contractor. The government improperly distributes billions of dollars every year – it improperly expended nearly $100 billion in Fiscal Year 2009, according to the recently released guidance – for reasons ranging from a basic data entry mistake to a failure to verify a beneficiary's qualification for funds. The administration's initiative, which builds upon reforms made in 2002, targets "high-priority" programs, or those that repeatedly report improper payments above a certain percentile threshold. The guidance, however, fails to specify that threshold.

The Improper Payments Information Act of 2002 (H.R. 4878), along with the Recovery Auditing Act passed the same year, requires federal agencies to account for the root causes of error in programs susceptible to "significant improper payments" in their annual performance reports to OMB. The Obama administration's program goes further by requiring all federal agencies with a "high-priority" program to set a goal to reduce improper payments to an acceptable percentage of disbursements or total disbursed funds and publically report on that goal semi-annually. Each agency is also to designate a Senate-confirmed official who will answer for the agency if it fails to meet its goal.

The Nov. 22, 2009, executive order lays out several new public disclosure requirements, greatly enhancing accountability in federal payments to private entities. By May 20, OMB, acting in conjunction with the Treasury and Justice departments, is required to begin publishing certain information online, including the names of the designated agency officials, the current and historical amounts of improper payments, their proportion to total agency payments, and the successful recovery rates and amounts of those payments. OMB will also have to publish the causes of the improper payments, each agency's targets for reducing and recovering improper payments, and the entities that have received the greatest amount of outstanding improper payments.

Along with this catalog of information on the administration's initiative, the head of each agency will have to make public a report submitted to the agency's inspector general each quarter on any improper "high-dollar" disbursements. The guidance unfortunately fails to specify what constitutes a "high-dollar" disbursement, but the report will include any actions the agency has taken or plans to take to recover the funds, as well as what steps the agency will take in the future to prevent a similar occurrence. To further engage the public, OMB, again acting in conjunction with the Treasury and Justice departments, is required by the end of May to establish a central Internet database for collecting and sorting public tips on the suspected fraud, waste, or abuse of government-disbursed funds. Each agency will have to provide a clearly marked link on its homepage for the public to access this database.

With project due dates still a few months away, it is hard to tell whether OMB will be ready to implement the requirements in time. Indeed, the new guidance released in March is more of a skeletal structure for the implementation of E.O. 13520, with many details left to flesh out before the executive order’s full transparency measures can be put into place.

Photo in teaser by flickr user wintersoul1, used under a Creative Commons license.

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